Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Health Catalyst (HCAT)
Market Cap: $169.2 million
Built on its "Health Catalyst Flywheel" methodology that emphasizes measurable outcomes, Health Catalyst (NASDAQ: HCAT) provides data and analytics technology and services that help healthcare organizations manage their data and drive measurable clinical, financial, and operational improvements.
Why Should You Dump HCAT?
- Offerings struggled to generate interest as its billings were flat over the last year
- Sky-high servicing costs result in an inferior gross margin of 50.4% that must be offset through increased usage
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
Health Catalyst’s stock price of $2.29 implies a valuation ratio of 0.6x forward price-to-sales. Check out our free in-depth research report to learn more about why HCAT doesn’t pass our bar.
Park-Ohio (PKOH)
Market Cap: $498.4 million
Based in Cleveland, Park-Ohio (NASDAQ: PKOH) provides supply chain management services, capital equipment, and manufactured components.
Why Does PKOH Give Us Pause?
- Sales tumbled by 1.2% annually over the last two years, showing market trends are working against it during this cycle
- Earnings per share decreased by more than its revenue over the last two years, partly because it diluted shareholders
- Cash-burning history makes us doubt the long-term viability of its business model
At $36.25 per share, Park-Ohio trades at 11.1x forward P/E. To fully understand why you should be careful with PKOH, check out our full research report (it’s free).
Integer Holdings (ITGR)
Market Cap: $3.18 billion
With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE: ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.
Why Are We Hesitant About ITGR?
- Subscale operations are evident in its revenue base of $1.86 billion, meaning it has fewer distribution channels than its larger rivals
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- ROIC of 5.4% reflects management’s challenges in identifying attractive investment opportunities
Integer Holdings is trading at $93.62 per share, or 14.4x forward P/E. Dive into our free research report to see why there are better opportunities than ITGR.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
